Private colleges’ net tuition revenue from first-year students declined in 2021-22, study finds

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Dive Brief:

  • Tuition discount rates for full-time first-year students attending private nonprofit colleges rose 2.1 percentage points to average 54.5% in 2021-22, a new record high, according to the National Association of College and University Business Officers.
  • Average tuition discount rates also climbed for all undergraduates attending private nonprofits, increasing by 1.4 percentage points to 49%, an annual NACUBO study released Thursday found. That measure hit its highest recorded mark as well.
  • Net tuition revenue from first-time undergraduates fell for just the second time in 10 years, with colleges that aren’t selective in admissions struggling most.

Dive Insight:

Colleges have long used grants, fellowships and scholarships to entice students to enroll or help them afford the cost of college. The rates at which they discount tuition are closely watched in light of concerns about the cost and value of college.

Discount rates are also particularly important for the business model at private nonprofit colleges, most of which depend on tuition for the majority of their revenue. NACUBO’s study is based on responses from 359 nonprofit colleges, with average enrollment of 2,788 undergraduates. 

The trends observed among private institutions can be important for higher ed more broadly, said Ken Redd, senior director of research and policy analysis at NACUBO.

“Even at public institutions, we know discounting happens,” Redd said. “Our study is pointing to some trends that, even though we focus on private universities, are a proxy for trends that are going on not just in higher ed but in society at large.”

More than eight in 10 undergraduates in the NACUBO study received aid. That widespread discounting combined with rising discount rates places increasing pressure on the tuition revenue institutions actually collect, Redd said.

Net tuition and fee revenue from first-time undergraduates plunged 2.3% before adjusting for inflation in 2021-22, according to the study. It’s only the second time in a decade that the measure has declined year over year, far outpacing a 0.8% decline in 2017-18.

Consider inflation, and net tuition and fee revenue per first-time undergraduate fell 3.2%, according to NACUBO. For all undergraduates, net tuition and fee revenue ticked up 0.6% after inflation.

Net tuition revenue per undergraduate is down 2% from where it stood in 2017-18, after adjusting for inflation.

Highly selective colleges tend to offer smaller discounts on their published tuition prices than colleges that admit large shares of their applicants, according to an analysis that’s new to this year’s study. It defined highly selective institutions as admitting less than 51% of applicants. Moderately selective colleges admitted between 51% and 74.9%, and minimally selective institutions admitted 75% or more.

The median first-time undergraduate discount rate for highly selective institutions was 44.8% in 2021-22. For moderately selective institutions, the median discount rate was 60.2%. It was 58.6% for minimally selective institutions.

Highly selective institutions netted 2.6% more in first-time undergraduate net tuition in 2021-22 than they did in 2020-21. Moderately selective institutions saw the net tuition measure fall by 4.8%, and minimally selective institutions experienced a 7.2% plunge.

“We don’t like to talk about this so much in higher ed,” Redd said. “The schools struggling the most are the schools with the least resources, and the schools that are still doing OK are the big research universities that tend to have more competitive admissions criteria.”

Tuition discounting doesn’t always mean foregone revenue. Institutions can fund grants and scholarships through other sources like endowment spending or donations. But data in the report suggests much of small private colleges’ tuition discounting is powered by institutions tapping reserves or simply waiving some tuition for students — never collecting the revenue it would represent.

Just 4.9% of institutional aid came from planned gifts or fundraising in 2020-21, NACUBO found. Only 9.9% came from endowment earnings. Institutional reserves funded 31.2%, and the remaining 54% came from other undedicated sources, which could include forgone tuition dollars, general funds or unplanned contributions.

“That just points out that institutions are scrambling even more than we had realized to fund these aid programs,” Redd said. “We have to keep in mind that most of the schools in our surveys don’t have big endowments, and they don’t raise a lot of money for financial aid.”

The new NACUBO report largely covers data from the 2021-22 academic year, but colleges set prices for that year before concerns took off about rampant inflation. For the upcoming year, several colleges have already drawn criticism and grabbed headlines with large tuition increases.

In the current environment, colleges will likely keep in mind concerns about affordability and access, Redd said. That could mean discounting tuition even more as published prices rise.

“Even though the sticker price may be rising in nominal terms next year, I’m not sure the real price will rise as much as people think,” Redd said. “There is still going to be a huge demand, I think, among families for financial aid.”

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